With no federal aid, for-profits charge less

For-profit colleges whose students aren’t eligible for federal student aid charge much less than eligible for-profits for similar programs, concludes a National Bureau of Economic Research working paper by Stephanie Riegg Cellini, an assistant professor of public policy and economics at George Washington University, and Claudia Goldin, a professor of economics at Harvard. Aid-eligible for-profits charge 75 percent more in tuition, roughly equal to students’ financial aid. That supports the “Bennett hypothesis” that colleges raise tuition to maximize aid, the authors wrote.

The tuition difference “seems to match, pretty well, the size of a Pell Grant,” Cellini told Inside Higher Ed.

The U.S. Department of Education estimates that 1.8 million students, 10.7 percent of the total, attend for-profit colleges. That leaves out  670,00 students at schools that don’t receive aid, the study found.  Some 61 percent of for-profit institutions don’t participate in federal aid programs. Most are small.

The non-aid-eligible colleges are typically independent operations that skew heavily toward health profession, culinary and transportation programs. Cosmetology schools are the largest group. “There are a lot of students at these institutions and we just don’t know that much about them,” Cellini said.

To participate in federal aid programs, colleges must be accredited, which can be costly.

Online education will lead to the creation of more low-cost for-profit colleges that don’t rely on federal aid, predicts Michael Clifford, a for-profit education investor, in an Inside Higher Ed discussion. “I believe that we will soon see an ‘all you can eat’ online regionally accredited model based on a monthly subscription fee of perhaps $99 per month to serve as a self-paced, self-motivated accredited degree program.”

The Atlantic looks at the Bennett hypothesis, which was meant to apply to public and nonprofit colleges and universities.


POSTED BY Joanne Jacobs ON February 16, 2012

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